Following the gradual reopening of economies world over, the cost of filling your car’s tank has been on a steady rise and the overall business costs keep going up.
This from rebounding demand for the staple after pandemic led restrictions against supply chain constraints and output gaps.
The supply of oil and gas has been struggling to keep up with demand as producers who had brought production down sharply in 2020 find it harder to raise output at this time.
Even before the hullabaloo that is Russia’s invasion of Ukraine this past week, the world had been witnessing runaway costs especially of energy.
Following the gradual reopening of economies world over, the cost of filling your car’s tank has been on a steady rise and the overall business costs keep going up.
This from rebounding demand for the staple after pandemic led restrictions against supply chain constraints and output gaps.
The supply of oil and gas has been struggling to keep up with demand as producers who had brought production down sharply in 2020 find it harder to raise output at this time.
Moreover, in the US, extreme weather conditions including cold and hurricanes have halted production as wells for instance freeze over.
Inflation
The impact of higher oil and gas prices is not limited to just energy costs with the phenomenon impacting multiple sectors of the economy.
Day to day consumer prices have been on the rise including food, house rents, bus fares and even the cost of used cars. A lot of resilience and hard work both from the citizens and producers, is keeping the economy and business sectors moving while consumers demand for innovative and competitive priced products.
As such, while the cost of living or inflation has other trigger sources, the greater energy costs have been the primary driver to the hike.
Today, inflation is not limited to just one class of economies as the pain is felt around the world.
Inflation in the US for instance peaked at 7.5 per cent in January while inflation in the United Kingdom sits above five per cent as the rest of continental Europe suffers from the fall out too.
Back home, the cost of living has been a bother even as the government places stop gap measures such as the petrol price stabilisation mechanism.
In recent weeks for instance, Kenyans online have been up in arms aggrieved by the runaway costs of basic consumer too mimicking similar discontentment as in other countries as the covid pandemic has already made the markets, prices and business situation very worrying.
More pain
Russia’s invasion of Ukraine now assures even more pain with energy costs set to ratchet up further.
The crisis is set to tighten supply in the oil market while impacting Forex exchange rates.
The other areas like raw materials for manufacturers and other industry players, will see costs rise and consumers demands and affordability trends may not be positive.
Russia for instance is the source of 17 per cent of the world’s natural gas supply and 12 per cent of oil.
Sizable parts of this exports are transported into the heart of Europe via pipelines passing through Ukraine which could be impacted by the ongoing military action.
Any further supply disruptions could further be exacerbated by proposed sanctions on Russia.
For instance, financial sanctions are likely to reduce Russia’s oil and gas sales while Russia perhaps, could push up output prices in retaliation.
As such analysts see oil prices reaching as high as 150 dollars per barrel.
Goldman Sachs analysts for instance see the cost of a barrel of crude at 125 dollars. The cost of business and basic transport and travel will slowly create much turmoil in business.
On the aftermath of Russia’s invasion, Brent, the world’s crude benchmark topped 100 dollars per barrel and remain in and around the point which is the highest mark for oil prices since early 2014.
Trade and sanctions means loss of business and disruptions of markets, and consumers spend less, and creates panic for investors, shares, markets and business.
The high fuel costs are seen as detrimental to economic activities as consumers and companies cut back on spending which greatly affects expansion and growth of business.
For lower income families, the devastation from high oil prices is even worse and worrying as the youth, look at private sectors, to develop new employment and entrepreneurship opportunities.
Cheaper alternatives
The runaway energy costs is likely a call to action- there are cheaper alternatives out there and which further serve to reduce the devastating effects of climate change.
There has been loud calls for an urgent shift away from fossil fuels as demonstrated in last year’s COP26 Climate Change summit in Glasgow, Scotland.
High fuel prices mean that fossil fuels are not sustainable whether speaking from a climate or economic perspective.
The high prices will likely discourage oil consumption with people likely to opt for fuel sufficient of electric vehicles (EVs) or even travel less. Looking at Uber, Bolt, little cabs, private cars owners etc and transport business in general will continue to face challenges on the costs and affordability as people travel less and inconveniences public transport development and the infrastructure in place is not optimally used .
As such, the moment must not be wasted and countries should move to assure investments in green fuels.
In my humble opinion, beyond actual appropriations for investment in sustainable energy sources such as solar and wind, governments should be looking at incentives to cut the costs of environmental friendly solutions such as EVs and the infrastructure to support this important investments .
At the same time, countries on the path to sustainability can further accelerate the journey.
Take the case of Kenya whose 88 per cent of electricity generation is from renewable sources including geothermal, hydro, wind and solar.
Even so, the country is yet to hit its optimal potential and a screaming opportunity for private public partnerships to grow the investments. For instance, according to data from the Energy and Petroleum Regulatory Authority (EPRA), installed capacity for geothermal sits at 863 megawatts (MW) against am estimated potential of 10,000MW.
The potential output from other clean sources such as hydro, wind and solar also sit well above the current installed capacity and greater progress in this field must be scaled up across the region.
As such Kenya and other Africa states, must push to meet this potential and cut itself completely off more expensive and dirty options such as thermal electricity generation.
The push for EVs in Kenya would meanwhile spare Kenya from a high import bill, mainly fuelled by rising crude costs which have had the impact of leaving a wider current account deficit (CAD) balance and weaker Kenyan Shilling. This is one big agenda to plug in and grow utilization of renewable energy and futuristic technology and build environmental benefits to power and enhance climate change strategies.
The learning from conflicts and wars is for nations, continental and global bodies to look at solutions proactively to protect their citizens and trade regions be self resilient from aggressors disrupting peace and safety of the public .
The private sector which drives economies globally need to partner with public, governments and international parties in these difficult times to promote peace, gain lower cost tariffs, and reduce costs for, to develop new innovation and competitiveness, and of course, push for consistent , affordable products and services to consumers .
